Business Math

Lesson
1
PRICING
Definition of Terms
Cost – purchase price of an article
Initial markup – amount added to cost to arrive at the original selling price
Additional markup – amounts added to original selling price to arrive at a new selling
rice
Markup cancellation – decrease in new selling price that doesn’t decrease it below the
original selling price
Markdown – reduction in the original selling price
Margin – sales minus the cost of goods sold (markup based on sales)
Markup – amount by which the cost of a product is increased in order to derive the
selling price (markup based on cost)
- A markup is added to the total cost incurred by producers of goods or
services.
- It is usually expressed in terms of percent.
the margin is addressing the profit as it relates to selling price; the markup addresses
the profit as it relates to cost price.
Cost Price - The price that a merchant pays for an item.
Selling Price - The price at which the commodity is sold per unit.
MARKUP RATE
Markup rate based on cost - The ratio of markup to its cost expressed in percent
Markup rate based on selling price - The ratio of markup to its selling price expressed in
percent

BASIC FORMULA
Selling price = M + C
Markup = S – C
Cost = S – M
Business
Math
Lesson
2
PROFIT or LOSS
FORMULA

Profit/Loss = Revenue - Cost

Expenses= Cost of sales + Transportation Expense

Note: The result is aprofit if it is positive and loss if it is

negative

PROFIT - it what remains of the selling price (sales)

revenue after all cost and expenses had been deducted

LOSS - it is what occurred when the cost and expenses

exceed the revenue or sales.

Income Statement for a Trading Firm

An income statement is a financial statement that shows

the results of operation,that is, if it earns a profit or incurs a loss for a period of time.

-A firm prepares financial statement on a monthly basis.

-For tax purposes, it prepared quarterly and annually.

Income statement – financial statement showing results of operation

Gross sales – total sales

Sales discount, sales returns and allowances are deducted from gross sales to arrive at the net sales

Cost of goods sold or cost of sales – how much the seller buys the item is the cost of the item

Operating expenses – expenses incurred to run the business

Other income – interest income and other incidental income the firm earns like rent income

Other expense – interest expense or finance charges financial institutions charge firms for their services
Operating profit/loss – gross profit less operating expenses

Net profit/loss – operating profit plus other income less other expense

4 types of financial statement

- Balance sheet/ statement (of)

financial position
- Statement of comprehensive
income
- Statement of cash flow
- Statement of changes in
owner’s equity
 FORMULA
ALOE
Assets = Liability + Owner’s Equity

Break-even point - is the level at which total revenue are equal to the total expenses.
Variable Costs – costs that change as the level of activity or production increases
Fixed Costs – costs that do not change within a relevant range of activity
Cost driver – an activity that is cause of the incurrence of costs